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Monday, 24 July 2017

Builders' FY18 performance may be hit on delayed implementation of RERA ICRA

The agency
expects RERA, which became effective from May 1 this year, to increase customer
confidence and improve demand prospects over the long term

NEW DELHI: Delayed
implementation of the the Real Estate (Regulation and Development) Act, 2016 (RERA) and transition to the new
regulatory framework is expected to impact the operational performance of real
estate developers during financial year 2017-18, according to rating agency ICRA.

Howeever, the agency expects RERA, which became effective
from May 1 this year, to increase customer confidence and improve demand
prospects over the long term.

“The current transition period of RERA implementation is
expected to be challenging for developers as they need to realign their
business operations to comply with the new regulations," said K
Ravichandran, Senior Vice President and Group Head, ICRA.

Ravichandran also expects the constraints imposed by the Act
to adversely impact the business model of unorganised developers and to bring
some level of consolidation in the industry.

"This will benefit larger developers who have the
resources and financial flexibility to withstand the near term challenges and
scale up execution levels as required," he added.

The provisions of the Act will also significantly impact
developers’ financial profile as it will raise their working capital
requirements and increase reliance on equity or debt financing, according to
the rating agency.

"With the commencement certificate being a pre-requisite
for registration and sale of projects, developers will no longer be able to
part-finance some of the pre-development costs with customer advances, said
Shubham Jain, Vice President and Sector Head, ICRA.

Moreover, Jain feels the restrictions on withdrawal of
customer advances will reduce cash flow fungibility across projects and
increase working capital requirements.